Company update: ADM Q4 2010/11

Higher taxes have reduced ADM's profit. Archer Daniels Midland Co. executives said that a four-fold jump in its tax bill last quarter was an anomaly as it derived more of its profits from U.S. operations.

The world's largest grain processor by revenue reported a 15% drop in fiscal fourth-quarter earnings, weighed by the tax charge and rising corn costs, with analysts also questioning the transparency of its hedging program.

Patricia Woertz, chairman and chief executive, said on a call with analysts that ADM has been putting an increased emphasis on transparency in recent months, but added that in some cases volatile crop markets make forecasting difficult.

Profits became concentrated in the US during the last quarter because of improved oilseed processing margins here and weaker-than-expected international merchandising results.

The 2011 earnings mix included "a lot of unique items that will not replicate itself in 2012," Chief Financial Officer Ray Young said.

Profit from ADM's corn-processing unit fell 16% despite a 15% increase in volume. Corn futures at the Chicago Board of Trade hit an all-time record of nearly $8 a bushel in early June, an increase of over $4.50 a bushel over the prior year.

ADM's corn sweetener profits dwindled to $9 million from $110 million a year ago due to the rising corn prices. Young said prior corn sweetener profits included hedging gains on corn that did not extend to the fourth quarter.

A lack of transparency on hedging is the reason the stock has "gotten killed" over the past three months, Citi analyst David Driscoll told ADM executives during the conference call. The stock is down 21% during that period.

Export ban benefit

ADM and other grain merchandisers have largely benefitted during the past year from a grain export ban in the Black Sea region that sent buyers scrambling elsewhere to secure supplies.

Companies such as ADM, with a global network of grain storage and transportation, were well-positioned.

Supplies remain tight, but the environment is shifting. Black Sea exports have resumed, and ADM and other companies are now focusing on strengthening their presence in the region.

ADM announced it would expand its network along the Danube River in Romania with 12 new river elevators and an export terminal on the Black Sea. The project would resemble its storage network along the Mississippi River in the US, Woertz said.

For the quarter ended June 30, ADM reported a profit of $381 million, down from $446 million year earlier. Revenue soared 45% to $22.87 million.